How Big Are The Currently Known Oil Reserves And What Are The Chances Of Finding New Ones?

This is not a simple question to answer. Sure, there are published reserves statistics, but those are consistently wrong, and for complex reasons.

Let me be clear — reserves figures are very accurate when used for their intended purpose. “Proven reserves” (http://en.m.wikipedia.org/wiki/O…) are a book asset on an oil company’s balance sheets, and this means they must have a high standard of evidence and only represent oil which is known to be economically and technologically extractable now. This is a very conservative approach, since extraction technology and oil prices are expected to continue growing for the foreseeable future.

Because of increases in technology and price over time, corporate reserves estimates are consistently 1.5x to 5x lower than the eventual “ultimate recovery” figure at field abandonment. Here’s some old data:

Ratios are going even higher with current oil prices. Ultimate recoveries 10x higher than initial proven reserves bookings are not unusual. The large majority of all oil reserves additions are from proving additional reserves in existing fields, not from finding new fields.

I was in a technical seminar yesterday, listening to a talk about the project timeline for a series of enhanced oil recovery systems that will be used in a particular subsea oil field. With no extra equipment, recovery rate will be about 8-10% of oil-in-place. This is what my company reports to the government and shareholders for proven reserves in that field. Then, each new technology rollout may add a few percentage points of additional recovery by allowing the oil to continue flowing despite pressure depletion — up to perhaps 25-35% economical recovery. That will triple the field’s cumulative production, but cannot be considered “proven” because the technology is still in the development pipeline. So it’s left out of reserves estimates until the technology is deployed, and then the accountants will get a new number to report.

So “proven reserves” is not a useful statistic for figuring out how long oil will last. As-yet unimagined technologies and further oil price increases can yield enormous boosts to reserves without finding a single additional drop of oil, because so much of what’s in the ground is currently too difficult to get out. Look at US natural gas reserves — any estimate from more than a decade ago was off by an order of magnitude. The numbers were derived in a scientifically-correct manner, and gave the accountants what they needed, but had no bearing on actual production in the long term. You just can’t use “reserves” to indicate “oil left until we run out.” They’re not the same thing.

Then on the other side of the coin, you have unaccountable OPEC countries who appear to be systematically over-estimating their reserves. OPEC production quotas are assigned in proportion to each nation’s reserves, so if you exaggerate, you get a bigger quota and thus more revenue. Venezuela’s estimates are (in my opinion) probably half fabricated, and include vast tracts of currently-uneconomical oil sands. Saudi Arabia’s reserves have not been adjusted downward despite 20 years of production without any new major finds, which is extremely suspicious. In fact, no OPEC countries subtract produced oil from their official reserves figures — and why would they? Their quotas would shrink. Incentives are improperly aligned, and there is no auditing or accountability mechanism, so no one should trust OPEC reserve estimates.

Where does that leave us? Corporate reserve estimates are too low by an unknown amount, and national reserve estimates are too high by an unknown amount. And no one knows how much oil is still undiscovered — in the Gulf of Mexico alone, about 1 billion barrels of new oil have been found each year for 25 years (except very recently due to moratorium slowdowns). Shale oil fracking outside the US could add enormous resources, and simple technology improvements in gas-to-liquid conversion technology could create massive gains in production on top of that. We are not running out of oil — far from it. Oil is just getting more expensive to find and extract.

But they don’t mean all that much. It’s a very flawed and limited view of the world’s true future oil supply. But it’s the best publicly-available data, and to a large extent, the estimation errors may cancel each other out — so let’s take a look.

“Global oil reserves rose by 31 billion barrels to 1,653 billion barrels in 2011. Globally, that represents an increase of 30% over the 2001 figure, despite cumulative production of 321 billion bbls during the past ten years. Thus global reserve additions amounted to 707 billion bbls between 2001 and 2011.”http://www.bp.com/sectiongeneric… “Overall, the long-term trend is the world continues to add more reserves than it uses while the global R/P ratio stands at 54.2 at the end of 2011.”http://www.bp.com/sectiongeneric…

That means, in a very loosely-defined and unrealistic way, we currently have 54 years of oil use left at current rates. Butif that’s all there was, we’d have oil shortages in about five to ten years. All oil wells, every single one, produce at their highest rate when they’re brand new (or right after a big upgrade/treatment). So if we stopped finding new oil, and stopped drilling new wells, and stopped developing/deploying enhanced recovery technology, our oil production rate would slowly and inexorably decline. It takes constant effort just to maintain existing production rates. Those efforts also tend to increase proven reserves at a similar rate to the decrease caused by sucking oil out of the ground, so R/P ratios usually don’t change much year on year.

Large increases to R/P ratios are usually caused (in my opinion) by reserves exaggerations. The dark green line on the chart above, representing South America, shot up like a rocket in the past few years, and I am not aware of any reason to think those numbers reflect reality. R/P ratios over about 30-50 don’t even make economic sense — it means you’re spending too much finding new oil, and not enough increasing production of the oil you’ve already found. The net-present-value of oil 100 years from now is basically nothing, for economic reasons (time value of money) and technological reasons (we may all drive electric cars in 2113). So Venezuelan oil officials who say their R/P ratio is over 200 are either very bad at their jobs, or are inflating official numbers for political reasons.

On the plus side, the same gradual production rate slowdown that forces us to keep exploring and drilling also means many existing oil wells will be pumping for 100 years. The oil doesn’t runout just because we stop finding new oil — production rates merely start to follow their natural decline curves. As I said, it’s complicated.

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